Effective equations for nonlinear wave propagation in a bubbly liquid are derived by the method of homogenization for the case where the volume fraction of the gas is finite. The analysis is valid when the ratio of the mean interbubble distance to wavelength is small. The effective equations are coupled with a canonical (cell) problem on the microscopic scale. The dominant mode of oscillation of a bubble is volume preserving and asymmetric with finite amplitude. The cell problem and the averaging in the effective equations can be simplified by the method of matched asymptotics for the case of small volume fraction. The cell problem can be further simplified by using the small gas‐to‐liquid density ratio. Approximate solutions are then constructed to the cell problem. These are coupled to the effective equations on the macroscopic scale to form a closed system. The solutions of this system are analyzed in the linear and weakly nonlinear regime.